Rate transmission better in easing cycle than tightening period

Experts said, generally, in an easing cycle banks tend to reduce the interest rates on deposits faster than on loans to protect their margins

Transmission of repo rate to banks’ deposit and lending rates seems to be better in an interest rate easing cycle than in the monetary tightening period, data put out by the Reserve Bank of India (RBI) in its latest monthly bulletin shows.

In the easing cycle, which lasted between February 2019 and March 2022, the benchmark repo rate was cut by 250 basis points (bps). Consequently, banks cut their median term deposit rates or card rates by 208 bps. Similarly, the weighted average domestic term deposit rates (WADTR) of banks reduced by 188 bps during that period.

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